European stocks suffer as ECB disappoints
European stocks have slumped after the European Central Bank (ECB) revealed it would only extend its quantitative easing (QE) programme until the end of March 2017, suggesting the measures are not enough to satisfy investors.
Mario Draghi announced the central bank’s asset purchase programme would be extended “until the end of March 2017 or beyond, if necessary”, instead of expiring in September next year.
The central bank also reduced its bank deposit rate from -0.2 per cent to -0.3 per cent in another attempt to boost bank lending and liquidity into the currency bloc’s economy.
Economists had expected a cut to as low as -0.4 per cent, as well as a potential cut to the refinancing rate, which was left on hold at 0.05 per cent.
The news was met with a sharp fall in the Eurostoxx 50 index, which moved 2 per cent lower having previously been up on the day. The FTSE 100 also moved into negative territory following Mr Draghi’s press conference, dropping as much as 1.3 per cent.
The euro, meanwhile strengthened from 0.71276 against sterling shortly before the announcement to 0.71953 at the time of the announcement. The single currency also rose as much as 2.5 per cent against the dollar.
The movements came as Mr Draghi said he expected the eurozone economic recovery to proceed, with domestic demand further supported by the ECB’s monetary policy measures as well as earlier progress made with fiscal consolidation and structural reforms.
However, the ECB’s updated longer-term inflation forecasts have been revised down slightly, with the oil price held responsbile.
He added: “Low oil prices should provide support for households’ real disposable income and corporate profitability and, therefore, private consumption and investment.”
Mr Draghi said a likely boost in government expenditure in some parts of the euro area would also help boost GDP and inflation.
However, he warned: “The economic recovery in the euro area continues to be dampened by subdued growth prospects in emerging markets and moderate global trade, the necessary balance sheet adjustments in a number of sectors and the sluggish pace of implementation of structural reforms.”